Everything Is Obvious_ _Once You Know the Answer - Duncan J. Watts [79]
Like anticipating black swans, making one-off strategic decisions is therefore ill suited to statistical models or crowd wisdom. Nevertheless, these sorts of decisions have to get made all the time, and they are potentially the most consequential decisions that anyone makes. Is there a way to improve our success here as well? Unfortunately, there’s no clear answer to this question. A number of approaches have been tried over the years, but none of them has a consistently successful track record. In part that’s because the techniques can be difficult to implement correctly, but mostly it’s because of the problem raised in the previous chapter—that there is simply a level of uncertainty about the future that we’re stuck with, and this uncertainty inevitably introduces errors into the best-laid plans.
THE STRATEGY PARADOX
Ironically, in fact, the organizations that embody what would seem to be the best practices in strategy planning—organizations, for example, that possess great clarity of vision and that act decisively—can also be the most vulnerable to planning errors. The problem is what strategy consultant and author Michael Raynor calls the strategy paradox. In his book of the same name, Raynor illustrates the paradox by revisiting the case of Sony’s Betamax videocassette, which famously lost out to the cheaper, lower-quality VHS technology developed by Matsushita. According to conventional wisdom, Sony’s blunder was twofold: First, they focused on image quality over running time, thereby conceding VHS the advantage of being able to tape full-length movies. And second, they designed Betamax to be a standalone format, whereas VHS was “open,” meaning that multiple manufacturers could compete to make the devices, thereby driving down the price. As the video-rental market exploded, VHS gained a small but inevitable lead in market share, and this small lead then grew rapidly through a process of cumulative advantage. The more people bought VHS recorders, the more stores stocked VHS tapes, and vice versa. The result over time was near-total saturation of the market by the VHS format and a humiliating defeat for Sony.15
What the conventional wisdom overlooks, however, is that Sony’s vision of the VCR wasn’t as a device for watching rented movies at all. Rather, Sony expected people to use VCRs to tape TV shows, allowing them to watch their favorite shows at their leisure. Considering the exploding popularity of digital VCRs that are now used for precisely this purpose, Sony’s view of the future wasn’t implausible at all. And if it had come to pass, the superior picture quality of Betamax might well have made up for the extra cost, while the shorter taping time may have been irrelevant.16 Nor was it the case that Matsushita had any better inkling than Sony how fast the video-rental market would take off—indeed, an earlier experiment in movie rentals by the Palo Alto–based firm CTI had failed dramatically. Regardless, by the time it had become clear that home movie viewing, not taping TV shows, would be the killer app of the VCR, it was too late. Sony did their best to correct course, and in fact very quickly produced a longer-playing BII version, eliminating the initial advantage held by Matsushita. But it was all to no avail. Once VHS got a sufficient market lead, the resulting network effects were impossible to overcome. Sony’s failure, in other words, was not really the strategic blunder it is often made out to be, resulting instead from a shift in consumer demand that happened far more rapidly than anyone in the industry had anticipated.
Shortly after their debacle with Betamax, Sony made another big strategic bet on recording technology—this time with their MiniDisc players. Determined not to make the same mistake twice, Sony paid careful attention to where Betamax had gone